Making sanitation subsidies effective: an IRC summer debate

Every year, diarrhoea kills more children in developing countries than AIDS, malaria and measles combined (Pruss-Ustun 2008). Sanitation subsidies are a common tool used to motivate households to construct toilets. This seems an obvious response: many who lack access to sanitation are extremely poor and the potential public health benefits of universal access to safe sanitation are immense. But what is a subsidy? All programmes have some form of subsidy – so the question is HOW to use them effectively.

On the 11th of September, IRC debated the pros and cons of sanitation subsidies. The debate started with short presentations for and against sanitation subsidies. After that, discussions shifted towards a common definition of a subsidy and improvements to ensure subsidies contribute to sustainable services.

Marielle Snel, Ingeborg Krukkert and Christine Sijbesma defended subsidies as a way to ensure that everyone can benefit from access to sanitation. Excluded groups including the ultra-poor, elderly without caring relatives, chronically sick, people with HIV/AIDS, disabled people cannot manage without some form of financial support. But, inclusive approaches should also focus on stimulating banks and local business to serve the poor. A broad range of subsidy options for different parts of the sanitation value chain should be considered.

Kristof Bostoen and Joep Verhagen opposed subsidies, pointing out shortcomings of current programmes. Firstly, the most common approach to sanitation subsidy- the provision of cash to a household for buying toilet parts, or the provision of toilet materials to a household- fails to reach the poorest.

Secondly, household cash subsidies in favour one specified costly design may distort the market and stifle service provision. Thirdly, toilet construction is just one step. What do households do when the toilet pit or septic tank is full? Instead of providing cash to households for construction of toilets we should look at financial support for viable businesses and ongoing sustainability.

A practical constraint for household subsidies is property rights. Renters and people without legal tenure have no incentive to invest in a toilet. In this context, focusing on subsidies for the poorest will not work: its landlords who need to be convinced to invest in toilet construction, maintenance and upgrading.

Kristof argued that any public service will have some kind of subsidy. Public money flows into the sanitation sector in many different ways, many of which are not generally called subsidies. Improving the effectiveness of sanitation subsidies is also about putting public money where it is needed most and its hardest to raise funds from households: financing of ‘software’ costs, such as hygiene promotion and sanitation marketing, are most likely to rely on subsidies.

A common definition of a subsidy

Discussions centred around the key question: what is a subsidy? In theory it is broader than governments giving cash to poor households to build a toilet. But, in reality cash is the option that most governments opt for, regardless of the effectiveness. As John Butterworth pointed out: subsidies are the easiest was to say you are working on equity. If effectiveness of subsidies isn’t a priority issue for programme implementers, then it is hard to promote alternative approaches.

Subsidy could be defined as the difference between the full actual costs of a service and what people actually pay for this service. Simply put: subsidy is not charging full costs of a service to the consumer. Public health announcements, sanitation marketing and sewers could be considered subsidy too. Even in developed countries there are cross subsidies for sanitation in the form of surcharges or taxes.

If subsidies are unavoidable then the question is HOW to use them effectively, ensuring the poorest benefit? Instead of direct subsidies to households, financial support can be given to businesses and banks to make sanitation more affordable to the poor. Instead of subsidies up-front, they can be given after completion of construction and managed through community committees that can also negotiate with the private sector for lower construction costs.

As Patrick Moriarty pointed out, what the sector now needs is set clear targets for levels of services, get clarity on what these services cost and which elements could be covered by subsidies.

What works at scale?

The BRAC WASH programme uses household subsidies at scale to increase coverage (the programme enabled 25.9 million people to access safe toilets from 2006-2010, providing 693,057 households with materials to construct or repair toilets). Clear and transparent indicators are used to determine which households are eligible for toilet subsidies or for loans. The programme also has a strong behavior change component and provides loans and capacity building to rural sanitation centres. In neighbouring India, the picture is quite different: The government’s Total Sanitation Campaign (TSC) provides cash to households, but is not reaching the poor, government endorsed toilets are expensive, and not used. The main focus is construction and not behaviour change.

In the sanitation marketing pilot project in Vietnam, programme funding was used for raising demand for toilets and improving the supply side. As a result the private sector has diversified its toilet products and financing options, and come up with cheaper toilet designs. They found that there is a market among poorer households but it requires different approach and different financing mechanisms. After the project ended, demand for toilets was sustained. 90 % of the households had a toilet, however, 16% of the poorest still didn’t have a toilet.

What next?

We concluded that appropriate sanitation financing mechanisms for the poor should go beyond hardware subsidies, and take into account hardware and software, capital and operational expenditure, the type of sanitation system being built, and consumer demand. Stimulating demand for toilets needs to go hand in hand with supporting service provision. We need to move the debate on from a simple yes/no subsidy. There is no sanitation programme without some form of subsidy – but the devil is in the detail. And the most important details are what level of service is to be delivered, what does it cost over the full life-cycle, and how will those different elements be paid for.

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